Japan's Debt Costs Surge as Interest Rates Rise

The Japanese government is facing a significant increase in its debt costs due to rising interest rates. According to the Ministry of Finance, the principal and interest repayment expense on Government Bonds for next year is expected to swell to a record high of 36.6 trillion yen (about 319 trillion won), representing a growth rate of 17% over last year's expense.

The sharp increase in Government Bonds expense is attributed to higher assumed rates, which rose from 3.0% in the 2026 budget to 3.8% this year. This reflects the recent rise in Japan's long-term Government Bonds yields, driven by concerns over fiscal soundness and inflation expectations.

The Japanese government's budget requests for 2027 are expected to exceed a record 130 trillion yen (about 1,135 trillion won), with nearly 30% allocated to Government Bonds expense. This could strain the allocation of funds to other items such as growth investment and priority measures like increasing defense spending.

Nikkei noted that if rates rise further by year-end, there is room for Government Bonds expense to increase more. The government's interest expense burden could also increase due to refinancing existing bonds with higher-rate issues.